Good day. And welcome to the Second Quarter 2018 Minerals Technologies’ Earnings Call. Today’s call is being recorded. At this time, I would like to turn the call over to Cindi Buckwalter, Vice President of Investor Relations and Corporate Communications for Minerals Technologies. Please go ahead, Ms. Buckwalter.

Thank you, Michelle. Good morning, everyone. And welcome to our second quarter 2018 earnings conference call. On today’s call, Chief Executive Officer, Doug Dietrich, will provide a brief overview of our second quarter results and highlight key growth initiatives in Asia. Then Chief Financial Officer, Matt Garth, will provide a more detailed review of our financial performance. Doug will conclude the call with a perspective on our first half performance and second half outlook. I would like to remind you that beginning on page 13 of our 2017 10-K, we list the various risk factors and conditions that may affect our future results and I will also point out the Safe Harbor disclaimer on this slide. Statements related to future performance by members of our team are subject to these limitations, cautionary remarks and conditions. Now, I will turn the call over to Doug. Doug?

Thanks, Cindi. Good morning, everyone. I will start off today by covering the highlights of our second quarter and then I thought it would be a good opportunity to take some time to go deeper into two key growth areas where we have made some recent progress, our metalcasting and PCC businesses in Asia. Matt will take you through a more detailed discussion of our second quarter results and third quarter outlook. And towards the end, I want to give you my assessment of our first half performance and share with you what we are currently seeing going into the second half of the year. We had a solid productive but also challenging second quarter with earnings per share up 4% to $1.28. Sales increased 12% to $465 million, with growth again this quarter in all four of our segments across all geographies and in the majority of our product offerings. Our revenue growth this quarter included the acquisition of Sivomatic, as well as favorable foreign exchange. However, excluding these two factors, our underlying sales momentum remained strong, with sales up 7% in the quarter. In Performance Materials, sales rose 19%. This was driven by our metalcasting business, which delivered 17% sales growth from solid demand in North America and continued growth in Asia. Household and Personal Care grew 48% from strong pet litter demand in North America, increased sales of our new dry laundry additive and the integration of Sivomatic. We had a solid quarter in Environmental Products, where sales rose 29%. In Specialty Minerals sales increased 3%, driven by both higher Paper PCC and GCC sales. Refractory product sales increased 19%, driven by strong volumes in both North America and Europe, as a result of steel mill operating rates that approached 78%. In Energy Services, sales grew 10%…

Thanks, Doug, and hello, everyone. I will review our second quarter results, the performance of our four segments and also provide you with our outlook for the third quarter. Second quarter was solid on both a top and bottomline basis. However, we were challenged by inflationary pressures in each business. Second quarter sales grew 12% with our underlying businesses delivering $27.4 million of organic growth on solid demand in most of our end markets and continued penetration of our value-added products. The newly acquired Sivomatic contributed to $14.1 million to topline growth in its first two months as a part of MTI and foreign exchange added $9.1 million. Included within the organic growth was approximately $6 million of freight pass-through. Operating income was $5.3 million lower than last year. Doug highlighted the inflationary environment we are facing and as shown in the operating income bridge, higher input cost impacted our business by $9.9 million in the quarter. Raw material cost increases accounted for roughly $6 million of the increase, driven largely by our two largest raw material purchases, lime and magnesium oxide. Freight and logistics are up $3 million over last year, primarily due to higher unit shipping costs, as well as lower availability of truck and rail transportation. And finally, energy prices are up $1 million higher than last year, with the increase coming across all of our operations. Our business performance offset $4 million of these cost increases through productivity, expense control and pricing adjustments. A portion of these costs absorbed in the quarter were recently pass-through in price adjustments early in the third quarter. This is a result of a timing aspect to our price adjustments, driven by our contractual terms. I will highlight the impact of these cost increases further in each segment. Operating margin was…

Thanks, Matt. Before we conclude, I want to take a few minutes to review our first half of the year and what we are seeing looking to the balance of the year. Over the past six month, we have made significant progress with adding building blocks to each of our businesses to support long-term profitable growth. Specialty Minerals were in the midst of the design and construction of two new Paper PCC facilities in Indonesia and initiated the planning of the new satellite in China. Traditionally, our two Specialty PCC expansions in the U.S. and the U.K. are moving forward and scheduled to come online later this year. In Performance Materials we are expanding our green sand bond blending capacity in China to keep up with growing customer demand. We are also selectively investing in our metalcasting business here in the U.S. to maintain and expand high quality supply for our U.S. foundry customers, and focused on leveraging our broad capabilities in water filtration and applying them to large environmental water remediation problems. Earlier this year, in our Environmental Products business, we successfully completed trials on a challenging water cleanup project and made our first sale of this new product called florasol [ph]. Another growth highlight from the first half is that we completed the acquisition of Sivomatic. I’m very excited about the growth prospects of our larger, global private label cat litter business. We also faced some challenges in the first half. As I mentioned earlier, we have been managing through inflationary cost pressures that began late last year and continued through the first half. For perspective, we absorbed $19 million in cost increases during the first half of this year, and have recovered approximately $14 million thus far through pricing. We took steps to mitigate this inflation by…

[Operator Instructions] And we will take our first question today from Jeff Zekauskas with J.P. Morgan.

Hi. Good morning. It’s Silke Kueck for Jeff. How are you?

Hi, Silke.

Hi, Silke.

Can you identify of the $14 million in recovered cost that you have this quarter. How much of that was freight pass through? How much of that was underlying price and what was productivity improvement?

Yeah. In the quarter, Silke, let’s step back, because in the quarter what we said is we had about $10 million of inflationary challenges and we were able to recover a portion of that. For the full year so far, what Doug highlighted was that we had a gap of about $5 million. Now the recovery, as we are looking at it today here in the second quarter has come from a number of different places. The vast majority of that is in pricing. When we look at it today, you can see that in the second quarter, we would say that the majority again is about driven by price, pardon me, and when you look at the year-to-date basis, what we are seeing is about $14 million of that, that Doug has spoken about is all price, so that gap that exists on the full year basis is about $5 million.

And when you talk about price that includes your freight pass-throughs?

So there is two components of freight pass through, Silke, one of them Matt highlighted, get you a little deeper. We have products that are priced on delivered basis and we have products that are priced ex-works that the customer picks up the freight directly. So where -- in the revenue number we will pass that freight directly through, so Matt commented, we probably have about $3.5 million of freight that’s in our revenue that’s basically direct cost pass-through. The other component of freight that Matt mentioned, the $3 million sits in our COG. So that’s our absorbed freight that it’s either intercompany or it’s absorbed freight, because it’s in our price already to customers. That we have to move through in pricing and those are some challenges that we have in terms of moving our pricing with customers. We have been successful doing it. So so far, this year, $19 million in cost increases. That would have been higher had we not taken some actions to mitigate in terms of our supply base, working with customers, a number of different actions we have taken to push that as low as possible and then we have taken the $14 million of pricing actions to cover it. The gap of 5, there is still some pricing that remains to come. What you haven’t seen in our second quarter is that we have absorbed that cost and in the beginning of the third, we were able to pass some of that through in pricing. So, we do lag, but as we continue as these costs plateau, we will see that we catch up and that’s why we think the margin compression is temporary.

Okay. And secondly, that what you guided to for the third quarter is essentially your EBITDA to be sort of like flat sequentially with the exception of Performance Materials where you think you will be $3 million to $4 million higher and what is the sales base that you assume for that, what do you think your incremental sales growth will be?

The underlying sales growth there, Silke, is at we think the same pace. We are at that 7%, 8% underlying sales growth. I’m not going to predict where foreign exchange is going. It’s actually starting to move against us right now. So that might pull that back a bit. And then we have the, probably, the same pace, rated pace of Sivomatic sales. So it’s probably going to be about 10% kind of growth rate going into the third quarter depending on that FX.

10% sequentially or year-over-year?

Year-over-year.

Year-over-year. So I mean you have -- so what you think is that your sales base is going to be -- so your sales are going to be somewhere like in the 460 and your EBIT is going to be somewhere around like $60 million, like $68 million, something like that, just like…?

Sounds about right…

And that’s…

Yeah.

Depends…

Right.

That’s going to depend, Silke, on our ability to again capture these costs, some of which will come contractually…

Right.

And some of which we are going to have to work through.

Okay.

It also depends on if we continue to see this rate of inflation. We are seeing a couple things taper, but we do expect things like freight it’s been very challenging in terms of availability an unit pricing and we see that continuing.

Is that you continue to do a very nice job. It sounds like with -- we see operating cash flow. Do you have an operating cash flow target for the year and do you like a free cash flow target for the year or maybe you can just talk about your capital expenditure levels for the year?

Yes. Silke, so operating cash flow we are expecting to be above what we saw last year in the $210 million to $220 million range and from a capital expenditures perspective, we are trying it around $80 million to $90 million.

Thanks very much. I will get back into queue.

Thanks, Silke.

And next we will move to Rosemarie Morbelli with Gabelli & Company.

Thank you. Good morning, everyone.

Hi, Rosemarie.

So if I follow up on Silke’s question then you will end up in the third quarter with about $450 million in revenues, $68 million also of EBIT, which would give you a 14.8% margin, 100 basis points above the second quarter so sequentially. Does that meet your expectations in terms of the price catch up sequentially or do you think you can do better than that?

No. That doesn’t meet our expectations. Look, I think, we have always targeted around 16% margins for the business and I think that’s still achievable. I think we have -- again we have been facing some these price increase -- these cost increases which we are passing through, we do lag. I do see that we will be moving these margins up, as you say around 15% in the third and I think they continue to move higher as we catch up with these cost increases. So I do think there is more room for that and I do see them recovering back to more historic levels as we move through some of these challenges.

Okay. No. I didn’t mean just I want to correct what I said, or did not phrase properly. I didn’t mean that your overall target long-term was around the 14.8%. I was just looking…

Oh! Okay.

… at the third quarter on your way to the 16%.

Absolutely. Absolutely. No. Our target -- we still think we will get back to those historic margins. But, yes, it’s going to be increasing as we continue to claw -- this claw back, move our prices and adjust our cost structures back to -- through the means we just talked about over the next several quarters.

Okay. Thanks. And then looking at metalcasting, your pre-blended usage in North America, I mean, for the industry overall of 95%. I am assuming that you are not the only one player in that particular category. So when we look at the potential in China, are you seeing the competition, the U.S. competition or Europeans, whichever one it is and if you could help me at least understand who it is? Do you see them also moving into China, and therefore, as time goes by, while there will be growth, there will be more pressure on your operations?

Yeah. Let me -- I will start it off and then I’m going to pass it to Jon Hastings and while I’m at it, I just want to introduce Jon. He is -- Jon is our new Group’s President for Performance Materials business. Jon joined the company in the Corporate Development role and has recently moved into this new role and after the retirement of Gary Castagna. So I’m going to start it and then I’m going to pass it to Jon to give you a little bit more color. But to first address, it really depends on where we have competition in China. It really depends on the segment of the market that you are looking at. As I mentioned, in my remarks it’s about 60% of the market, the foundry market in China that we don’t even participate and it’s very small, very fragmented base of foundries. In the other 40%, I will probably give you 15% of it is very high end large sophisticated serving major automotive, global automotive companies. Those are the ones that are really consuming and have the value of our blended bond systems and we do have competition there. One other competitor, European competitor, which is Clariant and actually sometimes in China it’s good to have a competitor where two people are kind of moving in the same direction, moving the market toward a blended system. But anyway, Jon, sorry, might have taken a little bit there, but why don’t you go ahead and give us first thoughts on what you are seeing in the growth in China and how do you see it going and sustain.

Okay. Good morning, Rosemarie. How are you? It’s Jon. A couple of things, let me just start with the fact that we are the supplier of choice in North America, you noted that. That’s predicated on a couple of different things. We are very unique ore positions. We have got more than 70 years’ worth of know-how and that know-how and technical expertise is recognized around the world. We have got really deep knowledge of our -- the foundry systems and the interaction of all the components that go into the bond systems and influence the production coming out of a foundry production line. The customers recognize that. They recognize us as world leaders. We certainly have the benefit of consistent and high-quality products and really what that does is it results in a improvement in quality and a reduction in scrap at our customers. And as our customers continue to invest and upgrade their capabilities, they are looking for improvements in the bond systems which are supplied to them. So in China, specifically, what we are seeing is, as Doug said, there is an upgrade in technology in the foundries and as that happens they are looking for the blended products. Now what we have is, we have been present in China for what, 15 years, 18 years or so and we expect to continue to grow. We do have the competition that Doug alluded to the Clariant. But we have got 450 customers and they continue to expect us to supply them and we continue to expect to grow with them. We are differentiated in our technical capabilities in the products that we supply and we have all sorts of good prospects for continued growth going forward.

And if I may follow up on this subject, what is the time frame do you think of the Chinese market to go to maybe half of what the penetration is in North America, and therefore, the potential for an additional, let’s call it, $450 million worth of revenues, I mean, are we -- what are we looking at?

Yeah. Rosemarie, it’s going to take some time for them -- for the Chinese market to evolve to the point where you have the penetration of blended product similar to North America. And what that means is that we have got this full capability of extending our growth trajectory for a long period of time. Again, just to emphasize, the customers are moving. They are moving in that direction. But there is a lot of bandwidth there, a lot of room for movement. Doug highlighted the fact that there is 60% of the market that doesn’t use blended systems. There is small foundries and as the foundries get more sophisticated, we have got ample opportunity for growth.

All right. Thank you. I will get back in line.

Thanks, Rosemarie.

And next we will move to Dan Moore with CJS Securities.

Good morning. Thanks for the color. Particularly in the opening comments, Doug, and while we have got Jon here and we are talking metalcasting. Help us understand a little bit, is there any upfront capital costs anywhere near what they would be in PCC in terms of converting to your outsourced blends and if not, what are the biggest impediments to conversion?

Yeah. Dan, good morning. There are couple of ways that we look at this. We continue to invest in our facilities and our facilities are basically our blending plants, silos, other ways that we help our customers. The amount of capital that will be spent is nowhere near what it would take in order to continue expanding the paper business. However, as the market continues to grow, we will continue to balance the needs of the customers with our capital expenditures such that we are well-positioned to continue our differentiated competitive position.

Yeah. Dan, I will just add to that. Yes. It will require some capital. But our blending facilities are as Jon mentioned, probably, a little bit simpler or smaller footprint than a PCC satellite in terms of complexity of control systems, et cetera. We will need to deploy capital to expand the market. I mentioned in my comments, we are expanding our blending capacity in our facility in northern China. So we will require that. But I think as we leverage our infrastructure, that will also come with expanded margins and I think that as we put in that capital, we have a great team of people already in China. We have 800 MTI employees in China and we have an established base of shared services. We have a very highly sophisticated technical teams, I mentioned we have our R&D center for Paper PCC in China and so we have the base of infrastructure already there and to leverage these higher sales and the incremental capital will be put in as we see it needed in a very prudent fashion to make sure we ensure supply to customers.

Very helpful. I guess the other part of the question I was trying to get at was the biggest hurdles that potential customers have within that 40% of the market toward switching. What is it, the pushback, is it -- an annual change over, what does it take get folks over the hump? That’s sort of what I was getting at.

I think it’s a similar challenge that we have in terms of Paper PCC. There is an inherent capability that they have developed, whether it be because they are using a different pigment today and they are used to that cost structure or that per unit cost. You have that capability built into current foundries. And what you are trying to sell is, hey, I can do that better than you and it takes time to demonstrate that. So, but bringing that technology, bringing that global experience, understanding -- deeply understanding that foundry system and then over time as you make trials, you show them that value of being able to price effectively, cost effectively, increase productivity, increase their quality and save them a lot of money at the same time. So it’s a process. But it is -- it’s a selling process. It’s a technical selling process.

Very helpful. And then switching gears, one more if I might, seeing a continued nice uptick in Environmental Products, tends to be lumpy, maybe just talk about projects, pipeline and your outlook for continued growth there? Thanks again.

Yes. It does tend to be lumpy and we had some lumping in Building Materials where we had some large projects last year, and we obviously, didn’t repeat this, this year. This quarter in Environmental Products, yes, it’s a strong quarter. We had almost 30% growth. Those items are kind of our commodity GCLs. So it’s affected some of the margins through just that mix element. But we have been working on again expanding the portfolio of higher tech projects. So we talk about our Resistex, which is a much higher technical product than a base GCL for challenging landfill remediation issues. We have now looking at what we do in Energy Services and already have an inherent capability and water in the company. We have expanded our portfolio to start to look at water remediation and I mentioned that we trialed -- successfully trialed a new product called florasol [ph] targeted at some challenging water issues here in the United States. And so we think we are going to we are moving that portfolio to a much higher margin, higher value type Environmental Products portfolio, and I think, you will see some improved results over the next year as we roll some of these out.

Got it. Thank you again for the color.

Yeah. Thanks, Dan.

And next we move on to Steve Schwartz with First Analysis.

Yeah. Good morning, everyone.

Hi, Steve.

Hi, Steve.

Hi. So first question on, Doug, you mentioned tariffs on MgO and I’m just wondering, from a competitive standpoint, where you sit with respect to your competitors and their cost position? So does it -- will your competitors see as much of a headwind, less, more?

Sure. I’m going to kick if off by saying that depends on which region. And so I’m going to let Brett Argirakis, who runs our Refractories business, give you some color there.

Hi. Steve. Yeah.

Hi.

Excuse me, what we have seen is the MgO increase is significant, very significant, low grade, which is the majority of what we use 90% to 92% went up about 50%. While the high grade, which is the brick, more used in brick, 97 grade, we used a small part of it has gone up 2.5 times. With that said, our competitors are use a lot of that. Some are backward integrated and therefore, they still have to purchase some raw materials from China. So it has impacted them maybe a little less. On the other hand you have raw materials in China and in Turkey that have seen some higher cost. But what we have done to offset is, in addition to price increases, is our product alternatives. We have been able to roll out our new product portfolio that provides equal to or better performance at lower cost. And then, secondly, in Turkey, we have been able to light up our second kiln that added additional magnesia that we produce at a very, very competitive price that has helped our cost recovery.

Let me add just one thing. When I mentioned it depends on region, Steve. In North America, I think, just all magnesium oxide for everybody is imported, right. So really in North America…

Okay.

… we are at that same kind of advantage or disadvantage that anybody else. And as Brett mentioned, some of our competitors have to buy that much higher cost material for their products relative to us. In Europe, more of the competition is vertically integrated and so are we, I’d give you in Europe we are probably 70% vertically integrated through the kilns that our own production MgO. And so we keep pace in terms of our competitive position vis-à-vis our competitors in both of those regions.

Okay. And what essentially is driving these cost increases? Is it very simply just higher demand?

Well, actually, it’s been environmental regulation in China. So I’d say 70% of the world’s magnesium oxide originates in China. Mines in Turkey and et cetera there are other pockets of magnesium oxide, but 70% of the world’s MgO is generated from China and last year, late last year as the Chinese government looked to curtail emissions, has shutdown a number of those magnesium oxide kilns for a time. And so, we saw curtailments in production, which has persisted, which has taken some supply out of the market. We as a company have diversified our supply base around the world. So that did impact us some but it also we have built over the years as you remember, not only 100% supply from China. We have diversified globally. But that’s what’s really driving and when the largest region increases prices, others tend to follow.

Steve, you may ask about…

Okay.

Sorry, Steve, you may ask about the tariff situation and how it may impact MgO. Right now, there is a proposed 10% tariff on MgO. But that is also being looked at potentially rising to 25% in the most recent proposals. And just from an overall perspective for MTI, as you look at import/export beyond just MgO but for the whole entire company, as Doug said, the amount of export or import that we have is relatively small. We actually export about $9 million and we import about $17 million. The vast majority of that import is the MgO that we have been speaking about.

I see. Okay. And while we are generally in the Refractories area as we head towards the end of the year, the equipment sales tend to be seasonal and oftentimes heavily weighted into the fourth quarter. Can you give us an idea on how the trend is going so far this year for equipment?

Yeah. We have had -- we noted -- Matt noted the year-over-year change in equipment. As you probably recall, Steve, our equipment purchase -- our equipment sales have traditionally been back-end loaded kind of the fourth quarter. Last year they were more evenly spaced throughout the year. This year we are seeing them kind of move toward the third quarter and the fourth quarter again. So, yes, I think, and part of our outlook for the year, we see another really strong year of equipment sales, but they are moving back toward that kind of late year sales.

Okay. Very good. That’s all I have. Thank you.

Yeah. Thanks, Steve.

Thanks.

And next we will move to Jeff Zekauskas with a follow-up with J.P. Morgan.

Hi, Silke.

I have --hi. Thank you. I have just two things I want to go over. In terms of the products that you export to Asia, is that related like the green sand that you need for metalcasting or do you source that regionally?

We source a bit of it regionally. But remember we have a very strong base of high quality bentonite here in the U.S. in our Western mines that we use and ship around the world. The amount of that is relatively smaller though in the overall viewpoint from what we are moving back and forth. And last night, I think, there was a news line from the Chinese government that said new proposals for additional tariffs may include bentonite. But, again, it’s a relatively small amount of material that we are exporting from the U.S. to China.

Okay. And…

Our Western bentonite, Silke, is -- our Western bentonite -- we call it Western bentonite comes from Wyoming Montana region states. It’s kind of a unique grade throughout the world. It is very premium, and we do and some customers do appreciate and pay for that premium product throughout Asia and even into Europe. But it’s probably only about 5% of our total bentonite production, but we do charge a premium for that. Most of our bentonite in China is self-sourced or we buy from third parties.

And for your -- for like the metalcasting on sales that you have into China, is that based, with like, is it based on like regular bentonite or do you use the green sands from Wyoming for that?

Like I said, we -- some of our formulations will use Wyoming bentonite, but a very small portion. The vast majority of that is locally mined source…

Okay.

… bentonite from China. We have our own mines in China. So we will use that.

Okay.

And we also look around the region and will source from third parties as we see the grades we need.

Okay. That’s helpful. And secondly, I have a question about the PCC tons. Of the 3 million tons of the PCC that you produce today, how many tons go to China?

Well, I won’t give you the China tons. I will give the Asia tons. I’d say 25% -- a little over 25% of our total tons are probably in Asia. It’s coming very close to the same size, same tons per year North America.

Okay.

North America’s still the largest production region. But that’s why I mentioned that as we build and fill the 400,000 tons that we are putting into Asia, that region is going to become the biggest for MTI…

Okay. So…

… over the next probably two year to three years.

Okay. So when you look -- a small amount of like math, just to understand the China market. So what you said is that China uncoated wood free paper market is about 15.5 million tons and PCC is normally filled in a level of like 20%. So is that like a 15.6, 20% it’s like a 3 million ton market. And currently it’s 50% penetrated, so it’s like 1.5 million tons are already been sold. And you are like 750 of that, roughly, or maybe a little bit less. So who is the other supplier?

Roughly a little bit more.

Or maybe a little bit more, okay. And who is the other supplier or is there local GCC that can be used?

Tell you what -- let’s talk a little bit more about China. I am going to -- how about D. J. give you a little color on kind of competitors and what’s out there in terms of and of the structure of the market?

Certainly, so Silke, we were the market leader in China and Asia in general, especially strong in India where Doug was also highlighting things. But back to China, it’s the marketplace very much mirrors our global market, meaning that two international players are out there, Omya and Emeris [ph] are the company names. Omya would be -- would have the second largest international share. There is also a fair amount of local Specialty PCC or PCC that is sold into the paper market. So one of the dynamics that we have is showing our performance against local PCC, but that’s where our applications expertise and our higher filler portfolio and those elements come in and create differentiated advantage, a much greater advantage versus the locals and a pretty solid advantage versus the internationals. Does that help?

That’s helpful. And like a last question on the China market, if the wood free paper market is about 15.5 million tons in 2017. Do you think that market was about like the same size two years or three years ago, like is it a market that’s generally growing or shrinking?

Silke, it’s -- the projection that we put on there is 1% year-over-year growth. It’s been that way for a while. We are seeing a transition. So Doug was highlighting some environmental pressures that affected the mag business that we talked about earlier. Those same sort of pressures are affecting the paper industry. So, over time, we do see consolidation in that industry growing, but that rate of overall consumption of overall production is in that 1% to 2% range.

Okay.

And Silke, let me add one thing to that. That consolidation that D.J. talks about is a major driver for PCC -- continued PCC penetration. Let me tell you why, there is again similar to that metalcasting structure, the paper market in China is similar. You have some very small producers of which we are not servicing today because to displace GCC, it’s probably not -- it’s very uneconomical to build a satellite for some very small paper producers. But as that consolidation happens, and that paper this consolidated into a new machine at a major Chinese paper maker, there is where either PCC is already on site and there is an expansion, a new satellite. So it drives that Paper PCC or that PCC kind of conversion. So, over time, that will continue but math is about right. There is probably 1.5 million tons of PCC remaining and then that size similar type math applies to India. We have always modeled that we will get half of those tons. I think historically we have done higher than that in terms of our capture rate of those conversions and those new satellites. That gives you an idea of why we think we’d been growing at 10%, 12% per year for the past five years. Now going to be biggest region for the company in terms of PCC and we see it continuing growing at that 10%, 12% range for the next five years.

Okay. That’s helpful. And I’m going to ask a very last question from Matt, just like a housekeeping question, since the Q is not yet. But what was your on D&A in the quarter and what do you expect in total D&A for the year including Sivomatic?

Yeah. D&A is running around $23 million to $24 million right now. That’s inclusive of Sivomatic. So I think for the year, Silke, you are going to end up being around $95 million based on what we did in the first two quarters. So you step back from that. And from an overall cash flow perspective still very strong, bringing Sivomatic again, generating stronger cash in the second half and we have already told you what the CapEx number was, so free cash flow for the year should also add up better than it was last year.

Thank you very much.

Thanks, Silke.

And next we will take a follow-up from Rosemarie Morbelli with Gabelli & Company.

Thanks. A couple of follow-ups, on the -- regarding the Sivomatic, are you still comfortable with the contribution of $0.09 to $0.10 in the second half, meaning that this, well, yeah, which I’m assuming there has been no contribution to EPS over the first two months of ownership?

Yeah. We are still comfortable with that range, Rosemarie, in the second half. We have -- we are still integrating the business. There is still a couple of costs that will show up in the third quarter in terms of our actions but that range we are still comfortable with.

And looking at Refractories, you are expecting progress or at least you talked about higher prices going through, et cetera, and then costs plateauing, and yet you are looking at a flat operating income sequentially, so what are going to be the negatives?

The negatives are, well, there is a couple of things going on in the quarter. We have got some -- it’s really a volume projection. We still see strong steel market. We have a couple of re-lines that are going on in the third quarter, which temporarily shifts some volume. We are going to continue to see higher magnesium oxide costs. I think in this business alone we have just implemented a price increase in the beginning of July for costs that we have captured in the first half or the second quarter and we see some more higher costs coming through, probably, around another $4 million in that business in the third quarter, and we are going to be adjusting prices. So I think we are in this -- what we are projecting is we are in this kind of mode of making sure that we are passing through. We could see some plateau of those MgO costs toward the end of year. We will see a little bit as we see how market prices react here in the third quarter. But it’s really just as we move through adjusting prices, couple volume changes, we see that being flat. We see improvement in the fourth quarter with all those equipment sales that I mentioned to Steve starting to come through versus last year.

Right. Which is what confused me, the equipment sales are growing and they usually have a higher margin?

They do and that was part of the margin change this quarter. We -- when you take a look at last year, we had a very strong quarter, second quarter last year of equipment sales. Those equipments are going to show more in the late third, probably, fourth. It’s the timing we are working through, but probably, more in the fourth this year. So still a strong year in equipment. It’s just a change in timing.

Okay. And so, this is one thing, then the environmental large projects at a lower margin. Is that, I mean, usually the way it works or was it that this particular project were especially more commodity than anything else?

No. It was just a higher volume of our more base GCL sales. So the 29% growth was growth in that kind of more commodity GCLs, which typically are lower margin and our kind of high-tech specialty GCLs and other remediation products. So had a strong sales quarter it was just a poor mix for that businesses this quarter.

Right. And then, quickly, what is behind the energy margin, you had topline growth and yet your margin declined to be below the magic 10% target.

Yeah. The -- we have modeled that, we keep -- we mentioned we modeled that business when we restructured it about year and a half year ago to be $100 million and 10% margins. We have not hit that $100 million margin yet. Since that timeframe markets continue to be depressed. That said, we have got -- we feel the right structure of overhead and positions around the world to capture growth as it moves. The change this was -- this quarter was just a little bit more of the filtration versus well testing mix. It’s -- this quarter was a little bit stronger in well testing work and we mentioned that that was some color work that tends to be pretty competitive and so there is been some pricing pressure. We do see in the second half of the year some of our well testing work and larger projects filtration flowbacks growing and we think those margins will expand a bit in the second half. A couple other highlights though we have talked last quarter about some of those new, we call it Orca, but it’s a comprehensive water analysis program for our customers. Those are up 30% over last year and usually what’s happening there is as we go and diagnose tough water problems, that will lead to either a sale of equipment or some service work and we have seen on the front-end of that about 30% increase in some of those projects. So we are feeling a little bit better about what’s coming in the second half.

Okay. Thanks. And my last question has to do with the M&A pipeline. Can you bring us up to date as to what we should be expecting and are they all going to be accretive at the get go the way you usually do?

Well, I will see what I can tell you. First, I will tell you we are busy integrating Sivomatic. So we are focused on making sure that we deliver and that business delivers what we expected to do for the price we paid. So, first and foremost, we are there. We are doing a great job with it as I mentioned. I think the team has really got their arms around it and the business is performing as we had expected it. That said, we still have a pipeline of other opportunities that we have been looking at. We meet quite frequently as a team to assess those opportunities. It’s hard to predict for you the timing of what’s there and what might work. We have seen that valuations out there are pretty high. We are seeing that a business is sold or purchased for pretty high multiples. And that’s -- so we look at things on an IRR basis. If you know us, when we look at something, we know exactly what we want to do with it, exactly what we are going to get out of it and exactly what we’d be willing to pay. So we stick to that knitting. But there are some good opportunities there. We generally like them to be accretive immediately, yes, and typically they are. But I can’t tell you that all of that will be exactly -- fall exactly that way. So that helped a little bit in terms of picture?

Yes. It does. Thank you very much.

Yeah.

And that’s will be all for me.

Okay. Thanks, Rosemarie.

And that will conclude the…

Next question?

Now that will conclude the question-and-answer session. At this time, I would like to turn the call back over to Ms. Buckwalter for any closing remarks.

Thank you, Michelle. Thanks everyone for joining us today. We look forward to speaking with you again soon and hope you have a great day.

Thanks everyone.

And with that will conclude today’s… [Ended Abruptly]